Companies Permitted to invest (Removal of Difficulty Order2015)

Ministry of Corporate Affairs issued another “the Companies (Removal of Difficulties) Order, 2015” in exercise of the powers conferred by sub-section (1) of section 470 of the Companies Act, 2013 o remove the difficulties form (a) Definition of Small Companies under Section 2(85) and (b) for that purpose also inserted forth item in sub – section (11) of Section 186.

We have discussed earlier here Section 186 of the Companies Act 2013. This Section imposes certain conditions on loan and investment made by a company.

Clause (b) of sub-section (11) of section 186 of the Act provides that the requirements of provisions of section 186 except sub-section (1) of the Section shall not apply to any acquisition made by a non-banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934 (2 of 1934) and any other company whose principal business is acquisition of securities.

In the absence of provisions for exemption to a banking company or an insurance company or a housing finance company making acquisition of securities in its ordinary course of business, a difficulty has arisen that such companies cannot make any acquisition of securities in their ordinary course of business.

Now, the Companies (Removal of Difficulties) Order, 2015 insert the following item shall be inserted in Section 186(11)(b), namely:- “(iv) made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary course of its business.”.

This effectively gives these companies permission for making acquisition of securities or in simple terms making investment.

In cases of any confusion in mind of my readers, Section 186(11)(a) already exempt in respect of a loan made, guarantee given or security provided by a banking company or an insurance company or a housing finance company in the ordinary course of its business or a company engaged in the business of financing of companies or of providing infrastructural facilities.

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Writer of this blog, Aishwarya Mohan Gahrana is Practicing Company Secretary and Insolvency Professional working with M/s Aishwarya M Gahrana & Associates, a New Delhi based peer reviewed firm of company secretaries having pan India presence through friends and associates. This blog is a knowledge sharing initiative. Views expressed here is of writer; not of the organization(s) he is working with.